Investor Sentiment Survey 2018
Challenges and Opportunities Facing European Fund Buyers

26 July 2018

We wanted to get a better view of the big issues currently facing the fund buying community, what better place to do this than at FundForum? In late June, top decision-makers and fund selectors met in Berlin for Europe’s largest gathering of wholesale distributors and leading institutional investors. Over a third of the fund buying community at the event took part, read on to discover what is driving their sentiment.

Nearly 60% of respondents stated that they were expecting to allocate an increasing portion of their assets to active managers in the next five years, in the context of growing volatility and macroeconomic risks. When identifying the global economy’s biggest short to medium-term challenge, 50% of respondents noted that regulation, followed by digitalization, currently represent the biggest challenges. Over 51% of the respondents believe automation will decrease the use of advisors. Lastly, when asked about ESG considerations, an overwhelming 91% of the respondents are convinced ESG will be become more important for investors over the five next years.

We present each question we posed and provide a breakdown of responses, along with commentary from our investment experts Anik Sen, Global Head of Equities, Steve Cook, Managing Director, Co-Head of Emerging Markets Fixed Income, and Hani Redha, Portfolio Manager, Global Multi-Asset.

Are you or your business expecting to allocate an increasing portion of your assets to active managers in the next five years?

We have seen many investors who had been almost entirely allocated to passive strategies now turning more to active. I think there is a growing recognition that the market is becoming driven much more by selection. Yet investors are also becoming more selective with the managers they choose, conducting thorough due diligence and focusing on managers that have proven themselves through market cycles.
-Anik Sen

For emerging markets fixed income, it’s hard for passive to compete; ETFs would need to replicate the various indexes in various emerging markets. For example, the EM corporate J.P. Morgan Index has 52 different countries, 640 different issuers, and 1,200 different securities. Some ETFs focus on more liquid issues, but they don’t necessarily replicate the total market.
-Steve Cook

What do you see as the biggest challenge to your organization within the next five years?

What is interesting is that this survey of European fund buyers sees regulation as the biggest challenge to their business. This is in contrast to the US, where I would expect to see the opposite, given that regulations are currently being rolled back there. We may be seeing an interesting divergence between the regions.
-Hani Redha

What do you view as the biggest technological opportunities for the funds industry in the next five years?

There will be some progress in AI over the next five years. But true cognitive recognition and the ability to actually drive decisions using AI is more than five years away, so I don’t think it is the biggest opportunity. I think there is a lot more room for automation of processes – that’s where the technology is and will be for the next five years.
-Hani Redha

Do you believe environmental, social, and governance (ESG) considerations will become more or less important for investors in the next five years?

ESG has been core to our investment process for some time, and governance is critical in terms of stock selection. We also view the “E” and “S” parts as connected with the “G.” In other words, environmental and social have to go hand-in-hand with governance. For us, it’s about sustainable profitability, and an analysis of good governance and of companies that are creating shareholder value through good governance is absolutely key to our process.
-Anik Sen

ESG within PineBridge, has always been embedded in our investment process, and been an important part of the overall investment rationale for our asset class. Everybody seems to be focused on ESG at the moment, but for us it needs to be a natural component of your investment process. At PineBridge it will continue to be an important part of the investment process, and we don’t believe that will change materially over the foreseeable future.
-Steve Cook

Do you believe automation will decrease the use of advisors?

There will be many investors attracted to the economy and ease of use offered by automated investment services. But there will also be those who will always value the expertise of the human investment professional. I expect that automation will decrease the use of advisors in the retail market, and we have already seen penetration there. When it comes to institutions, I think they will still value professional advice and would not turn to automation for that. They may increasingly turn in-house rather than seeking external advisors, though.
-Hani Redha